Newport Park Pty Ltd v Chief Commissioner of State Revenue

[2003] NSWADT 64

CITATION:	Newport Park Pty Ltd -v- Chief Commissioner of State Revenue [2003] NSWADT 64
DIVISION:	Revenue Division
PARTIES:	APPLICANT Newport Park Pty Ltd RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER:	026022
HEARING DATES:	22/10/03
SUBMISSIONS CLOSED:	10/22/2002
DATE OF DECISION:	04/03/2003
BEFORE:	Verick A - Judicial Member
APPLICATION:	Land tax exemption - principal place of residence
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Land Tax Management Act 1956
CASES CITED:	Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68 Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 Council of the City of Newcastle v. Royal Newcastle Hospital [1959] 100 C.L.R. 1
REPRESENTATION:	APPLICANT In person RESPONDENT M Allars, Barrister
ORDERS:	The decision of the Chief Commissioner under review is affirmed

1 The Applicant seeks a review of an objection decision made by the Chief Commissioner of State Revenue (Chief Commissioner) in relation to land tax assessments for the 2001 and 2002 land tax years issued on 27 February 2002.

2 The issues in this matter concern some aspects of the exemption under the Land Tax Management Act 1956 (NSW) ("the LTM Act") from land tax, land that is used or occupied as the principal place of residence of the owner of the land. In particular, the matter raises the following two questions for determination: (1) Are the shareholders of the Applicant deemed under s. 21A of the LTM Act for the years in question to be the owners of a property situated at 87 Queens Parade East, Newport in New South Wales? and (2) If they are the owners for purposes of the LTM Act are they entitled to the exemption from land tax under the provisions of s. 10(1)(r) of the LTM Act by virtue of the provisions of s.10T of the LTM Act?

Background

3 The Applicant's two shareholders at the relevant time, Patricia and Michael Egan, have submitted the following chronology of events regarding the acquisition and disposal of 87 Queens Parade East, Newport, New South Wales to support the exemption claim :

"1. Decision in April 2000 that the house at 20 Neptune Road, Newport was not suited to our need, as it was too small for
our extended family.

2. Made an offer that was accepted for a property at 12 Bishop St, Newport, that would suit our needs as a dual occupancy
development.

3. Asked Patricia Holdings Pty Ltd to incorporate a Company Title company, Newport Park P/L, to acquire the Bishop St
property. It was requested that a plan be submitted, showing the property divided into two, and that the share entitlements
be related to each half of the property.

4. The seller pulled out before exchange. It was subsequently revealed that somebody had already purchased an option on
the property so our purchase of 12 Bishop St could not proceed.

5. In October 2000 we found 87 Queens Parade East and our offer was accepted. Newport Park P/L purchased the property
from Aquerk Pty Ltd, settling in December 2000. The property purchased included DA plans to build a new dual
occupancy style building.

6. We had put our existing property, 20 Neptune Road on the market and it was slow to sell. We found a buyer and
exchanged contracts in January 2001. We had to get bridging finance because of the delay in selling our home.

7. Our intention was to demolish the old house at Queens Parade and build a dual occupancy to live in for ourselves and
extended family. One of our grown up children, who is married with two children, wished to live in the separate
accommodation. We also have an eight year old child.

8.Once our sale of Neptune Rd went through, we started on our plans of demolition and building the dual occupancy at
Queens Parade. We had to move to rented accommodation whilst this occurred.

9.We approached a solicitor in the city to tidy up the company documents, in particular to change the references from 12
Bishop St to 87 Queens Parade East.

10. Whilst the house was being constructed, we got to know some of the neighbours at Queens Parade, as it was our
intention at the time to live there. We even got involved in some local lobbying against a SEPP 5 development in the street,
and joined a group contributing $50 to funds to fight it.

11.Construction continued for some months. In November 2001 we decided that there were some aspects of the proposed
building that would not suit us. We originally thought from looking through the plans that the development would be
different in layout in some ways. But the reality of the partially completed building was not what we wanted.

12.We enlisted the services of an agent who found us a buyer in a couple of weeks. The buyers were quite difficult with
terms and didn't sign the contract until well into the New Year. During this time we kept changing our minds about whether
we would sell. In late January we signed the contract.

13.We had to wait until the house was finished before we could settle with the buyers, so we had to stay at our rented
address. We maintain that Queens Parade was or sole residence all this time as we had intended to live there but could not
because it was under construction.

14.In April 2002 we signed a contract to buy a large house at 35 Bardo Road, Newport that has separate accommodation
more suited to our tastes. In May 2002 we settled on both Queens Parade East and Bardo Road, Newport.

15.We had to pay Land Tax in order to settle but have disputed the application of Land Tax on this property.

16.We have no other property or shares and have just done the best we can with getting a suitable place to live."

4 As part of his written submissions, the Chief Commissioner produced the following chronology:

2.6.02 Newport Park Pty Limited Incorporated

25.10.00 Newport Park Pty Ltd ('the Company") enters into contract for purchase of 87 Queens Parade East Newport

5.12.00 Company settles on purchase of 87 Queens Parade East Newport

Jan 01 Applicants enter into contract for sale of 20 Neptune Road Newport

24.2.01 Commencement of period of Residential Tenancy Agreement of Applicants renting the premises at 8 Lewis Street Avalon

5.3.01 Settlement of sale of 20 Neptune Road Newport

29.5.01 House set out sketch of 87 Queens Parade East Newport prepared by Cardno BLH Pty Ltd showing Unit A, Unit B and common area Unit C

23.8.01 Patricia Egan acquires 750 000 B Class shares in the Company Michael Egan acquires 750 000 A class shares in the Company 87 Queens Parade East Newport converts to company title - Unit A owned by Mr Egan; Unit B owned by Mrs Egan; Unit C is common area - Mr & Mrs Egan have exclusive right to occupy part of the building

Nov 01 Applicants decide that proposed building plans for 87 Queens Parade did not suit their requirements

Jan 02 Contract for sale of 87 Queens Parade East Newport executed by way of transferring shares in the Company by the Applicants to purchasers

24.1.02 Land Tax Return filed by the Company

27.2.02 Land Tax Assessment issued by the Respondent for land owned as at 31.12.00 & 31.12.01 for $88402.00

7.3.02 Objection lodged by Applicants to assessment under s.86 TAA

April 02 Applicants sign contract for purchase of 35 Bardo Road Newport

18.4.02 Further shares allotted in the Company - Mr Egan has total of 750 001 A class shares; Mrs Egan has total of 7500 001 B class shares

14.5.02 Settlement of sale of 87 Queens Parade Newport takes place by way of transferring shares in the Company. Applicants settle on purchase of 35 Bardo Road Newport

2.6.02 Determination of objection by Respondent under s. 93 TAA

18.7.02 Application lodged in ADT

5 The statements made in both the chronologies are not in dispute.

Legislative Scheme

6 Under the LTM Act, an owner's principal place of residence is exempt subject to certain qualifying criteria. The exemption does not generally apply if a company has an interest in the land with the exception in the case of company title schemes where the shareholders are entitled to occupy a particular unit by virtue of ownership of a particular parcel of shares. I will now examine the relevant legislative provisions that deal with the exemption from land tax an owner's principal residence.

7 The term "principal place of residence" is defined in s 3(1) of the LTM Act as follows:

"principal place of residence" of a person means the one place of residence that is, among the one or more places of residences of the person within and outside Australia, the principal place of residence of the person".

8 The qualifying criterion for the exemption is set out in s 10(1)(r) of the LTM Act. Section 10 (1)(r) states as follows:

"with respect to taxation leviable or payable in respect of the year commencing on 1 January 1998 or any succeeding year, land that has a land value in respect of the year of less than the premium tax threshold and that is used and occupied as the principal place of residence of the owner of the land (or, if there are joint owners, as the principal place of residence of one or more of them) and for no other purpose (except as provided by subparagraph (iii), being: (i) a strata lot, or (ii) a parcel of residential land, or (iii) a parcel of residential land on which there is also one of the residential occupancies referred to in subsection (1D)(b)(ii) (A)-(F), unless the owner or all of the joint owners who so used and occupied the lot or parcel (as appropriate) is such an owner by reason only of being a trustee".

9 For purposes of the exemptions found in paragraphs 10(1)(r)(ii) and (iii), "residential land" is defined in s 10(1D) to mean "land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building or buildings designed, constructed or adapted for residential purposes". Section 10(1D)(a)(i) excludes land owned by a company from being "residential land".

10 Section 10T of the LTM Act provides that if the Chief Commissioner is satisfied that the owner of land intended to use and occupy the land solely as owner's principal place of residence, the intended use and occupation is to be regarded as its actual use and occupation for purposes of s 10(1) (r). The deeming provisions found in s 10T only apply to the two tax years immediately following the tax year in which the relevant person became owner of the land in question.

11 The relevant provisions of s 10T(1) are as follows:

"If the Chief Commissioner is satisfied that the owner of land (or, if there are joint owners, any one or more of them) intends to use and occupy the land solely as his or her principal place of residence, that intended use and occupation of the land is to be regarded as its actual use and occupation for the purposes of section 10 (1) (r). "

12 If a company owns land and the conditions prescribed in s 21A can be satisfied the shareholders will be treated for purposes of land tax as being the owners of the land. The relevant provisions of s 21A are as follows:

"(1) This section applies to land if:
(a) the land is owned by a company in which all the shares are owned by persons each of whom, because of that share ownership, has an exclusive right to occupy a part of a building on the land or one of 2 or more buildings on the land, and

(b) the Chief Commissioner is satisfied that the whole of the land is reasonably used in connection with the occupation of the building or buildings.

(2) For the purpose of assessing land tax in respect of land to which this section applies:
(a) each shareholder is deemed to be owner of that part of the building or that building that the shareholder is entitled to occupy because of that share ownership, and

(b) each part of the building, or each such buildings, is deemed to be a strata lot under the Strata Schemes (Freehold Development) Act 1973, and

(c) the company is not to be regarded as the owner of the land.

13 The Applicant claims that the shareholders should be treated as owners and exempt from Land Tax on the property ownership of 87 Queens Parade East, Newport. The shareholders rely on the following grounds:

"1.We intended to use and occupy the property solely as our principal place of residence as we had no other property to live in.

2.That Section 10T of the Land Tax Management Act 1956 provides a concession for unoccupied land intended to be the owner's principal place of residence.

3.We intended to use and occupy the property, as why would we have decided to build for any other reason - it doesn't make sense - we had to pay rent out to another party. We had to rent another property so that the construction could take place.

4. Section 10T states that: If the Chief Commissioner is satisfied that the owner of the land (or joint owners) intends to use and occupy the land solely as the principal place of residence, that intended use and occupation of the land is to be regarded as it's actual use and occupation for the purposes of Section 10(1).

5. Our contention is that the OSR's decision on our objection was incorrect as it stated: (that the Chief Commissioner is not satisfied that the land was used in connection with the Occupation of the building, due to the fact that construction of the dwellings have not been completed. As a result the land was not occupied by the owners and the land did not qualify for exemption). We could not possibly have lived there because of the construction."

14 The Chief Commissioner submits that to 'satisfy s 10(1)(r), the Applicants must show that the land was firstly, "used or occupied as the principal place of residence of the owner of the land" and, secondly, that the land comes within one of the three categories in s. 10(1)(r)(i)-(iii). On the facts as disclosed in the Applicant's chronology, the Chief Commissioner submits "that neither Mr Egan nor Mrs Egan ever actually occupied or used 87 Queens Parade East Newport for anything and that "the Egans never lived at 87 Queens Parade east Newport because it was always under construction during the period December 2000 - May 2002." Accordingly, the Chief Commissioner argues that "the first limb of the exemption under s. 10(1)(r) has not been satisfied".

15 The Chief Commissioner in his submissions proceeds to consider the application of s 10T to the facts in this matter and concludes as follows:

"Section 10T deems intended use or occupation of the land to be actual use or occupation for purposes of section 10(1)(r). This deeming provision only applies if the Respondent is satisfied that the owner of the land intends to use and occupy the land solely as his or her place of residence. The evidence indicates that the land was intended to be used and occupied as the principal place of residence of Mr & Mrs Egans. Accordingly, by force of s. 10T(1), Mr & Mrs Egan have satisfied the first limb of the exemption in s. 10(1)(r)."

16 The Chief Commissioner next considers whether the applicants have satisfied the second requirement of s.10 (1)(r) - whether "the land comes within one of the three categories in s. 10(1)(r)(i)-(iii)". The first category of land which attracts the exemption is a "strata lot" (s 10(1)(r)(i)) which is defined in s 10(1E) to mean, inter alia, a lot under the Strata Schemes (Freehold Development) Act 1973 (NSW). The Chief Commissioner submits that '87 Queens Parade East Newport is not a strata lot unless s. 21A(1) of the Act entitled "Company Title Units Deemed to be Strata Lots" applies to the land with the consequence that each part of the dual occupancy buildings at 87 Queens Parade east Newport is deemed to a strata lot under Strata Schemes (Freehold Development) Act 1973 (NSW)(s. 21A(2)(b)) and Mr & Mrs Egan are deemed to be the owners of these "lots"(s. 21A(2)(a)).'

17 The Chief Commissioner further submits that the land also does not qualify under the second and third categories of land as set out in paragraphs (ii) and (iii) of s. 10(1)(r) because in either case, it must be a parcel of "residential land" which term is defined in s. 10(1D) to mean land that is used or occupied for residential purposes not being land that is owned by a company. In the present matter the land was owned by a company during the relevant period and accordingly the Chief Commissioner submits that the land does fall within either of the categories 'unless s.21A (1) of the Act entitled "Company Title Units Deemed to be Strata Lots" applies to the land with the consequence that the Company is not to be regarded as the owner of the land (s. 21A(2)(c)) and Mr and Mrs Egan are deemed to be the owners of these "lots" (s. 21A(2)(a)).'

18 Finally, the Chief Commissioner "submits that s. 21A(1)(b) (a cumulative requirement to para (a)) does not apply to 87 Queens Parade East Newport - ie the Chief Commissioner cannot be satisfied that the whole of the land is reasonably used in connection with the occupation of the building or buildings. The building(s) were never occupied during the relevant period for any purpose. In fact, they were unoccupied as construction had not been completed." In taking this final position the Chief Commissioner also submits that the deeming provisions of s 10T do not apply to s 21A.

Reasons and decision

19 I agree with the Chief Commissioner that the exemption in s 10(1)(r) is only available to Mr and Mrs Egan if the provisions of s 21A apply to the facts in this matter. I also agree with the Chief Commissioner that the deeming provisions found in s 10T do not apply to the provisions found in s 21A.

20 Section 21A only applies if the following two conditions are satisfied:

(a) the land is owned by a company in which all the issued shares are owned by persons each of whom, because of that share ownership, has an exclusive right to occupy a part of a building on the land or one or more buildings on the land, and

(b) the Chief Commissioner is satisfied that the whole of the land is reasonably used in connection with the occupation of the building or buildings.

21 In the present matter, on the facts, Mr and Mrs Egan clearly satisfy the first condition. The only issue that requires consideration is whether they satisfy the second condition.

22 For the Chief Commissioner to be satisfied of the second condition the relevant land must be "used in connection with the occupation of the building or buildings". The use and occupation requirements of this condition have not been previously considered. However, these requirements in the context of the s 10 (1) (r) have been considered in a recent judgment handed down by his Honour Gzell J in the Supreme Court in Flaracos v Chief Commissioner of State Revenue [2003] NSWSC 68. These requirements have also previously been considered in the context of the forerunner of s 10(1)(r) by the New South Wales Court of Appeal in Commissioner of Land Tax v Christie[1973] 2 NSWLR 526.

23 His Honour in Flaracos was considering a set of facts in relation to exemption found in s 10 (1) (r) and in considering the requirements of use and occupation his Honour relied on the interpretation of these terms suggested by the Court of Appeal in Christie.

24 In relation to "use" Bowen JA with whom Jacobs P agreed, said Christie at 533:

""Use" has regard to the purpose to which the land is put. Under sec 9 (3) (e) it must be shown to have been devoted to the purpose of constituting the site of the dwelling house. Provided there is a unity in the land in question in a physical sense and a unity in what is done in devoting it to the purpose of providing or constituting the site, and provided there is a sufficiently proximate and not too remote connection between the dwelling house and its requirement or requirements of its users or occupants on the one hand, then this element will be sufficiently established to demonstrate "use" as the site of the dwelling house."

25 In relation to the requirement of "occupation", Bowen JA in Christie went on to say at 533-534:

""Occupation" is not synonymous with legal possession. It includes possession, but it also includes something more: see Newcastle City Council v Royal Newcastle Hospital. It involves an element of control, or preventing or being in a position to prevent the intrusion of strangers ( Newcastle City Council v Royal Newcastle Hospital) . It is for this reason that physical presence on the land and fencing are evidence of occupation. But continuous physical presence on every part of the land does not have to be shown in order to establish occupation."

26 In Flaracos his Honour Gzell J went on to express his opinion as what constitutes "occupation" as follows:

"In my opinion continuous physical presence on the land is not required to constitute continuous occupation. If a person leaves his or her premises for a holiday, it would defeat the purpose of the Act to conclude that occupation had ceased to be continuous. So long as the person retains the right to possession and controls possession, that person remains in occupation, in my view. The observation of Sir Nigel Bowen in Christie that physical presence over all the land is not necessary to establish occupation is equally apposite when there is some hiatus in physical presence over time."

27 Although both these cases dealt with the requirements in the context of the exemption found in s 10 (1) (r), I am of the opinion that the observations in relation to the requirements equally apply to the provisions of s 21A(1)(b). The cases support the view that to satisfy the second requirement of s 21A there was the need for some actual use and occupation. Section 21A(1)(b) contains no reference, unlike s 10T, to any intended use or occupation. The provisions of s 21A (1)(b) clearly require some physical use and occupation of the relevant building or buildings.

28 There is also support for the view I take in the following observations made by Lord Denning in the Privy Council in Council of the City of Newcastle v. Royal Newcastle Hospital [1959] 100 C.L.R. 1 at page 4:

"But legal possession is not the same as occupation. Occupation is a matter of fact and only exists where there is sufficient measure of control to prevent strangers from interfering…….There must be something actually done on the land, not necessarily on the whole, but on part in respect of the whole. No one would describe a bombed site or an empty unlocked house as 'occupied' by anyone…."

29 In the present matter Mr and Mrs Egan unfortunately do not even get to be considered for purposes of the second requirement of s 21A(1) because as their own chronology states (see paragraphs 8, 10 and 11) and their written submission states (see paragraph 5), the relevant building that was situated on the land was demolished immediately after purchase and the construction of a dual occupancy continued for some months. A construction site could not really be described as occupied by some one as a building. The Egans never occupied the building at any stage prior to its sale on completion. Accordingly, they did not use or occupy the relevant building that was either there when they purchased the land or the completed dual occupancy.

30 In the present matter, the elements of "use" and "occupation" do not therefore pose the kind of difficulties that arise when the facts like those before his Honour, Gzell J, have to be considered to determine "use" and "occupation".

31 The Applicant also relies on the ground that s 10T should apply to the facts. Section 10T only applies to individuals who purchase vacant land with the clear intention of building a residential building. Section 10T (1), inter alia, provides that the owner intends "to use and occupy the land solely as his or her principal place of residence" (emphasis added). It does not apply to land owned by a company where the shareholders may intend to build a residence. There is, unfortunately, in terms of equity and policy, a lacuna in the law. The Chief Commissioner was in no position to rule that s 10T or s 21A applied to the Applicant's case, because the company continued to be the owner for land tax purposes through out the relevant period. The assessments for the relevant years were therefore correctly made against the Applicant.

32 Accordingly, I affirm the decision under review